Review: The Ultimate Question: Driving Good Profits and True Growth

One Question Can Determine Your Businesss Future. Do You Know the Answer?

CEOs regularly announce ambitious growth targets, then fail to achieve them. The reason? Their growing addiction to bad profits. These corporate steroids boost short-term earnings but alienate customers. They undermine growth by creating legions of detractorscustomers who complain loudly about the company and switch to competitors at the earliest opportunity.

Now loyalty expert Fred Reichheld shows how to reverse the equation, turning customers into promoters who generate good profits and true, sustainable growth. The key: one simple questionWould you recommend us to a friend?that allows companies to track promoters and detractors and produces a clear measure of an organizations performance through its customers eyes. In industry after industry, this “Net Promoter Score” is the single most reliable indicator of a companys ability to grow.

Based on extensive research, The Ultimate Question shows how companies can rigorously measure Net Promoter statistics, help managers improve them, and create communities of passionate advocates that stimulate innovation. Vivid stories from leading-edge organizations illustrate the ideas in practice.

Practical and compelling, this is the one bookand the one toolno growth-minded leader can afford to miss.

Frederick Reichheld’s latest effort to enlighten CEOs and other business leaders is at its best mildly entertaining, but at its worst it is misleading and could result is some very costly and wrong decisions by potential users.

There are several critical weaknesses of this work-I will only mention a few.

First, there are many contradictions, reversals and logical inconsistencies throughout the book. Examples abound and can be discovered by anyone who spends a modicum of time with the book. Among the biggest is the reinterpretation of the satisfaction measure used by Enterprise Rental Car as a measure of net promoters (p.63). This is very confusing because earlier in the book the reader is led to believe that one needs to measure “recommendation” not “satisfaction” because Mr. Reichheld alleges that satisfaction is unrelated to revenue or profit growth. So why does the satisfaction measure works for Enterprise? More astounding Mr. Reichheld continually uses the Enterprise case throughout the book as justification for using the NPS measure.

Second, the entire premise of the Net Promoter approach is unsupported by third party peer-reviewed research articles in psychology, marketing research, or social science journals. All of the support provided in the book is based upon Mr. Reichheld’s claims of research conducted by the firms he works with (Bain and Satmetrix) none of which has been reported in the aforementioned scientific publishing outlets. In fairness, the Net Promoter idea was originally promoted in a Harvard Business Review article, but HBR is not a research journal and its articles are not peer reviewed. Publication in HBR is somewhat equivalent to publication in Business Week or Fortune, and certainly does not qualify as scientific review.

Third, Mr. Reichheld confuses cause and effect with correlation. Recommendation is an effect not a cause. It occurs because something else (like a satisfactory experience) causes it to occur. Yet throughout the book, Mr. Reichheld continuously claims that recommendation’s correlation with sales growth proves that it is a driver of growth. Correlation is simply a measure of association that says nothing about cause and effect. Consider the correlation between the number of churches in a community and beer sales. They are probably correlated but does one cause the other? More likely there is a third factor that is causing both to move together-like population growth. The same is true of the Net Promoter measure-it is likely being caused by something else-like satisfaction. Its correlation with sales growth is spurious and is not causal. If one examines the evidence provided by Mr. Reichheld in Appendix A this confusion of cause and effect is even more apparent-in every case shown, the time periods for the sales data predates the time periods when the Net Promoter Scores were collected. So what is causing what?

The Art of Negotiating During a Job Offer

When someone offers you a job you need to stop telling them why you deserve it and start thinking about how to make the situation work to your advantage. When an offer is presented, for the first time in the interview process, the candidate has the power. Here is an effective protocol for receiving a job offer:

Thank the person for the offer. This is the time to appear humble. You’ve spent a significant amount of time telling your counterpart how great you are and now they believe you. Let them know that you are honored and flattered that they value you.

Ask for time to think about it. Even if they offer you the most money you ever thought you’d get try to let some time pass. If nothing else, it shows your future employer that you are a rational decision maker. If you join them, they will be investing in you. An impulsive person is seldom given big responsibility. Even if you just take an hour, take some time before responding.

Ask if that’s the best they can do. It takes courage and tact but it works. After you have taken the time you need to think things over, simply ask your counterpart if that is the best offer they can make. On some occasions (and this has happened to me and a few people I know) they will counter-offer right away. The key to doing this is to appear nonjudgmental and unemotional. Say something like: “Once again, I want to express how flattered I’m am with your consideration. Before I make my final decision I’d like to know if that is your best possible offer.”

Once you say that shut up. Watch the reaction (if you are in person) or listen to their reaction (if on the phone) carefully. If there is silence, DO NOT SPEAK. Let the other party break the silence.

How to Handle Business Mergers

Business mergers can help two companies to keep trading when times are tough. Sharing skills and resources whilst losing the worst aspects of both companies can make for a stronger organisation, better suited to the current economy. Over the years many companies add departments that become obsolete and start to lose money in one way or another a merger can force cutbacks and, although its one of the most difficult processes a manager will ever have to handle, it can save the business from going under.

One of the most important aspects of any business merger is very hard to describe as it will differ from place to place. This is how to merge the working cultures of two organisations into one. Imagine one business that has primarily skilled, older workers who work nine to five and do very little overtime. Another organisation has primarily young, enthusiastic trainees who put many hours in during the week and have regular staff nights out and activity days. It may seem easy merging numbers on a bit of paper, but you have to merge these two working cultures into something that makes sense for everyone involved.

Often compromises have to be made. For example, senior members of one company may not be best suited to sit on the new board, but office politics dictate that they have to be represented. You might need to keep certain employees that given the choice you wouldnt.

It is also very difficult, especially if you work for one of the two companies, to keep morale in both places high as the merger is taking place. Inevitably new roles will be created and some jobs will be lost. People will have new colleagues and find that their old ones, who they have formed friendships with, no longer work with them. A good manager can navigate these difficulties but sometimes its hard not to get involved in petty squabbles over territory that often break out.

The best tip for handling mergers is to choose the best people to oversee it. People that understand their company inside out, who know which people would be best suited for the new roles, and who arent afraid to make tough decisions and to make them quickly. You cant pretend to know each of your workers and the workers in the other company but managers should know their sections well. Use their knowledge and make sure you carry out your decisions in a tough but sympathetic manner. If you can navigate the merger quickly the business will be set up in its new format quickly, meaning people can start to understand their new place and get on with their jobs. Being in limbo lowers morale and loses your business money each day it continues.

Bert Steiner has worked in manufacturing for many years, making everything from guttering to insulation. He has owned several small businesses and likes to write about business management.

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